K Data table The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,100 for the year just ended, and its total assets exceeded $500,000. The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Vehlim, has decided to seek a line of credit from the firm's bank totaling $83,000. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Vehlim wants to use the line of credit to supplant a large portion of the firm's payables during the summer, which is the firm's peak seasonal sales period. The firm's two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm's income statement for the year just ended was provided. These statements are found in the following tables: Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon's loan request. a. Calculate the following financial ratios for 2013: b. Which of the ratios calculated in part (a) do you think should be most crucial in determining whether the bank should extend the line of credit? c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for your recommendation. Data table Current ratio Acid-test ratio Ratio Norms 1.80 0.90 Debt ratio 50.0% Times interest earned 10.00 Average collection period 20.0 Inventory turnover (based on cost of goods sold) 7.00 Return on equity 12.0% Operating return on assets 16.8% Operating profit margin 14.0% Total assets Total asset turnover 1.20 Fixed asset turnover 1.80 (Click on the icon in order to copy its contents into a spreadsheet.) Print Done T. P. Jarmon Company Balance Sheets 2012 2013 Cash $15,100 $14,000 Marketable securities 5,990 6,210 Accounts receivable Inventory Prepaid rent Total current assets Net plant and equipment 42,100 32,900 50,900 84,000 1,210 1,090 $115,300 $138,200 285,900 $401,200 270,000 $408,200 2012 2013 Long-term debt Accounts payable Notes payable Accruals Total current liabilities Common stockholders' equity Total liabilities and owners' equity (Click on the icon in order to copy its contents into a spreadsheet.) $47,900 14,900 $56,900 13,000 6,010 5,010 $68,810 $74,910 159,900 150,100 172,490 183,190 $401,200 $408,200